Declining component costs, competition among PC makers, and a desire to expand the consumer market beyond the 50 percent penetration mark will prompt PC makers to experiment with how to price PCs in 1999, said Paul Otellini, executive vice president of the Intel Architecture Business Group. Some of the likely options include selling stripped-down PCs for under $400 or giving away the box under extended Internet service contracts, similar to the "cell phone business model," he said.
"There will be a lot of interesting experimentation," he said. "There is some price point, whether its free, or $299 or $399, that will take hold. We want to support the people that will do that."
In other Intel news, consumers should expect to see increased differences between the Pentium II and Celeron chips. The Pentium name, furthermore, should survive. (Intel is an investor in CNET: The Computer Network, publisher of News.com.)
Intel's more aggressive stance on Celeron pricing, combined with new, cheaper types of packaging for the chip, will help realize that goal, Otellini added. Intel lost ground to AMD in the consumer segment in 1998, Otellini admitted, and now plans to gain it back.
Following Celeron price cuts in December, the company released Celerons running at 366 MHz and 400 MHz, priced at $123 and $158, and cut prices on earlier models. The lowest-end Celeron, the 300A-MHz Celeron with 128KB of secondary cache memory, sells now for $71, relatively low for an Intel chip. A 300A-MHz Celeron sold for $138 at the end of October.
"There will be other higher performance Celeron [processors] in the first half and first quarter," he said.
Part of the price cut comes from a new type of packaging Intel uses with the Celeron. Celerons are available both in the traditional "Slot 1" package, but also in a cheaper "370 Pin Socket" package.
The new packaging, however, is having an effect on the size of consumer systems. The Pin package is between one-half to one-third the size of the Slot package, which means PC makers can shrink the size of their PCs. Similarly, Intel will also start to experiment with the Slot 1 packaging with the lower end of the Pentium II line to reduce PC costs and size as well.
To cut costs further, Intel will also release a chipset that incorporates 3D graphics in the first half of the year, he added. Celerons will also begin to appear in TV set-top boxes. "We have a couple of design wins with Celeron that will roll out in the next 12 months," he said.
Interestingly enough, while Intel is being aggressive on pricing and processor speed, it is slowing up development on the system bus for Celerons. Celerons currently use a 66-MHz system bus. The system bus is the main data pathway between the processor and main memory and helps determine PC performance. Pentium II systems mostly use a faster 100-MHz system bus.
Analysts and even Intel executives have said that Intel would start to incorporate a 100-MHz system bus into Celeron by the third quarter. That, however, won't likely happen until 2000, said both Otellini and Ron Peck, a marketing manager for Celeron. AMD has already largely shifted its product line to the faster 100-MHz bus.
"No matter how much we talk about performance, the only thing that matters is megahertz," in the consumer market, said Otellini. "We will go with the natural flow this time."
Peck added that this will help differentiate Celeron chips from Pentium II chips. Currently, there is only around a 10 to 15 percent performance difference between Celeron processors and Pentium processors running at the same speed, according to Intel estimates. Analysts put the delta even lower. Celeron chips, however, cost substantially less.
Otellini further indicated that the "Pentium" name will live on when Intel comes out with its Katmai generation of processors later this quarter. "We have a lot of equity in the Pentium name," he said. Future desktop processors will have "presumably a Pentium name," he said.
Katmai is the code name for Intel's next generation processor. It is built around a Pentium II core but contains approximately 70 new instructions that will enhance video playback, game playing, and other graphics-intensive applications. Rumors are circulating that Katmai will be called Pentium III when released.